UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____________ to ____________
Commission File Number 1-8250
WELLS-GARDNER ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1944630
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2701 North Kildare Avenue, Chicago, Illinois 60639
(Address of principal executive offices) (Zip Code)
(773) 252-8220
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
As of July 31, 2000, 4,876,584 shares of the Common Stock, $1.00 par
value of the registrant were outstanding.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
FORM 10-Q
For The Quarter Ended June 30, 2000
PART I - FINANCIAL INFORMATION
Item 1.
Index to Financial Statements:
Condensed Consolidated Statements of Earnings
- Three Months Ended June 30, 2000 & 1999
- Six Months Ended June 30, 2000 & 1999
Condensed Consolidated Balance Sheets
- June 30, 2000 & December 31, 1999
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 2000 & 1999
Notes to the Condensed Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 4.
Submission of Matters to a Vote of Security Holders
Item 6.
Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
Item 1. Financial Statements
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Statements of Earnings
Three Months Ended June 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 14,009,000 $ 11,034,000
Cost of sales 11,447,000 9,149,000
Engineering, selling & administrative expense 2,237,000 1,388,000
----------- -----------
Operating income 325,000 497,000
Other expense, net 192,000 92,000
Income taxes --- ---
----------- -----------
Net earnings $ 133,000 $ 405,000
=========== ===========
Earnings per share:
Basic net earnings per share $ 0.03 $ 0.09
=========== ===========
Diluted net earnings per share $ 0.03 $ 0.09
=========== ===========
Basic average common shares outstanding * 4,880,702 4,738,629
Diluted average common shares outstanding 5,018,998 4,762,550
See accompanying notes to the unaudited condensed
consolidated financial statements.
* Shares outstanding have been adjusted to reflect the 5% stock dividend
paid to all shareholders of record as of April 07, 2000.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Statements of Earnings
Six Months Ended June 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 26,908,000 $ 20,241,000
Cost of sales 21,928,000 17,083,000
Engineering, selling & administrative expense 4,241,000 2,790,000
Operating income 739,000 368,000
(Gain) on sale of fixed assets (328,000) ---
Other expense, net 338,000 209,000
Income taxes --- ---
Net earnings $ 729,000 $ 159,000
=========== ===========
Earnings per share:
Basic net earnings per share $ 0.15 $ 0.03
=========== ===========
Diluted net earnings per share $ 0.14 $ 0.03
=========== ===========
Basic average common shares outstanding * 4,889,674 4,733,620
Diluted average common shares outstanding 5,055,558 4,759,593
See accompanying notes to the unaudited condensed
consolidated financial statements.
* Shares outstanding have been adjusted to reflect the 5% stock dividend
paid to all shareholders of record as of April 07, 2000.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Balance Sheets
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash & cash equivalents $ 463,000 $ 119,000
Accounts receivable (net) 8,984,000 4,795,000
Inventory:
Raw materials 5,440,000 6,123,000
Work in progress 1,102,000 402,000
Finished goods 4,136,000 1,985,000
--------- ---------
10,678,000 8,510,000
Other current assets 1,172,000 609,000
----------- -----------
Total current assets 21,297,000 14,033,000
Property, plant & equipment, net 1,212,000 2,567,000
Other assets:
Investment in joint venture 173,000 -
Intangibles (net) 2,819,000 2,189,000
----------- -----------
Total other assets 2,992,000 2,189,000
Total assets $ 25,501,000 $ 18,789,000
=========== ===========
Liabilities:
Current liabilities:
Accounts payable $ 3,702,000 $ 2,127,000
Accrued expenses 627,000 755,000
Note payable 670,000 670,000
----------- -----------
Total current liabilities 4,999,000 3,552,000
Long-term liabilities:
Notes payable 7,981,000 3,576,000
----------- -----------
Total liabilities 12,980,000 7,128,000
Shareholders' Equity:
Common stock-authorized 25,000,000
shares, $1.00 par value; 4,875,463
shares issued as of June 30, 2000
& 4,543,570 shares issued as of
December 31, 1999 4,875,000 4,544,000
Additional paid in capital 2,730,000 1,869,000
Retained earnings 5,090,000 5,248,000
Unearned compensation (174,000) -
----------- -----------
Total shareholders' equity 12,521,000 11,661,000
----------- -----------
Total liabilities & shareholders' equity $ 25,501,000 $ 18,789,000
=========== ===========
See accompanying notes to the unaudited condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 729,000 $ 159,000
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation & amortization 291,000 311,000
Gain on sale of fixed assets (328,000) -
Share of loss on joint venture 27,000 -
Changes in current assets & liabilities
(net of effects of acquisition):
Accounts receivable (3,434,000) 470,000
Note receivable - (12,000)
Inventory (1,325,000) (2,826,000)
Prepaid expenses & other current assets (558,000) 64,000
Accounts payable 1,232,000 1,063,000
Accrued expenses (235,000) (170,000)
---------- ----------
Net cash used in operating activities (3,601,000) (941,000)
---------- ----------
Cash provided by (used in) investing activities:
Issuance of note receivable - 125,000
Payment for acquisition, net of cash acquired (1,998,000) -
Proceeds from sale of fixed assets 1,499,000 -
Additions to plant & equipment, (net) (92,000) (116,000)
---------- ----------
Net cash provided by (used in) investing actiities (591,000) 9,000
---------- ----------
Cash provided by financing activities:
Borrowings - note payable 4,405,000 996,000
Proceeds from stock options exercised
& employee stock purchase plan 131,000 43,000
---------- ----------
Net cash provided by financing activities 4,536,000 1,039,000
---------- ----------
Net increase in cash & cash equivalents: 344,000 107,000
Cash & cash equivalents at beginning of period 119,000 26,000
---------- ----------
Cash & cash equivalents at end of period $ 463,000 $ 133,000
---------- ----------
Supplemental cash flow disclosure:
Interest paid $ 304,000 $ 166,000
Taxes paid $ - $ -
Supplemental schedule of noncash investing &
financing activities:
Investment in joint venture $ 200,000 $ -
See accompanying notes to the unaudited condensed
consolidated financial statements.
</TABLE>
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
Notes to the Condensed Consolidated Financial Statements
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of
normal recurring adjustments, which are necessary for a fair presentation
of the financial position and results of operations for the periods
presented. Certain information and footnote disclosures normally included
in the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
1999 Annual Report to shareholders. The results of operations for the
three months and six months ended June 30, 2000 are not necessarily
indicative of the operating results for the full year.
2. On January 12, 2000, the Company acquired certain assets and
liabilities of American Gaming and Electronics (AG&E), a leading service
and parts distributor to the gaming markets. This acquisition was
accounted for under the purchase method of accounting and accordingly, the
results of operations of AG&E have been included in the Company's
consolidated financial statements from January 12, 2000. The excess of
the purchase price over the fair value of the net identifiable assets
acquired has been recorded as goodwill and is being amortized over 20
years. The purchase agreement provides for additional payments over the
next four years contingent on achieving certain operating income targets.
The additional payments, if any, will be charged to goodwill at the time
incurred. The effect of the proforma results of operations had the
acquisition occurred at the beginning of the year was immaterial.
3. On February 17, 2000, the Company declared a five percent (5%) stock
dividend payable to all common stock shareholders of record on April 7,
2000. Shares outstanding for all periods presented have been adjusted to
reflect the five percent (5%) stock dividend.
4. Basic earnings per share is based on the weighted average number of
shares outstanding whereas diluted earnings per share includes the
dilutive effect of unexercised common stock equivalents. Both basic and
diluted earnings per share reflect the declared stock dividend as
referenced in note 3.
5. On March 28, 2000, the Company sold its Chicago headquarters and
recognized a gain on the sale of fixed assets of $328,000 which was
recorded in the first quarter of 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Second Quarter Ended June 30, 2000 and 1999
For the second quarter ended June 30, 2000, net sales increased 27.0
percent to $14,009,000 from $11,034,000 in the prior year's period. The
sales increase in the quarter was attributed to additional revenue from
the Company's acquisition of American Gaming and Electronics which was
consummated in January, 2000. Gross operating margin, as a percentage of
sales was 18.3 percent, or $2,562,000, compared to 17.1 percent, or
$1,885,000, for the same period last year. This increase in gross
operating margin is attributed to the higher sales volume. Engineering,
selling, administrative and amortization expenditures increased $849,000
to $2,237,000 from $1,388,000 in the second quarter of 1999. This
increase is attributed to the operating expenses incurred for American
Gaming and Electronics and the Company's efforts to expand its
international sales. Other expense, net increased $100,000 to $192,000
from $92,000 in the second quarter of 1999. This increase is mainly
attributed to additional interest expense incurred during the quarter.
For the second quarter of 2000, the Company reported net earnings of
$133,000, or 3 cents per basic and diluted share, compared to net earnings
of $405,000, or 9 cents per basic and diluted share, for the comparable
1999 quarter. The Company did not recognize any income tax expense in the
quarterly periods due to the utilization of net operating loss
carryforwards.
Six Months Ended June 30, 2000 and 1999
For the six months ended June 30, 2000, net sales increased 32.9 percent
to $26,908,000 from $20,241,000 in the prior year's period. The sales
increase was attributed to additional revenue from the Company's
acquisition of American Gaming and Electronics and additional sales to the
Company's service and monitor business. Gross operating margin, as a
percentage of sales was 18.5 percent, or $4,980,000, compared to 15.6
percent, or $3,158,000, for the same period last year. This increase in
gross operating margin is attributed to the higher sales volume and a
favorable product mix. Engineering, selling, administrative and
amortization expenditures increased $1,451,000 to $4,241,000 from
$2,790,000 for the same period last year. This increase is attributed to
the operating expenses incurred for American Gaming and Electronics and
the Company's ongoing international sales efforts. During the first
quarter of 2000, the Company sold its headquarters and recognized a gain
on sale of fixed assets of $328,000. Other expense, net increased
$129,000 to $338,000 from $209,000 in 1999. This increase is mainly
attributed to additional interest expense to fund operations during the
year. For the six months of 2000, the Company reported net earnings of
$729,000, or 15 cents per basic share and 14 cents per diluted share,
compared to net earnings of $159,000, or 3 cents per basic and diluted
share, for the comparable 1999 period. The Company did not recognize any
income tax expense in the six month periods due to the utilization of net
operating loss carryforwards.
<PAGE>
Liquidity and Capital Resources
As of June 30, 2000, cash and cash equivalents increased $344,000 from
year end 1999. This increase was due to a timing difference caused by
deposits in transit. On a daily basis, the Company utilizes a sweep
account to minimize its cash on hand, minimize its outstanding balance on
its line of credit and its interest expense. Accounts receivable
increased $4,189,000 to $8,984,000 from $4,795,000. This increase is
attributed to the 32.9 percent increase in sales volume in 2000.
Inventory increased $2,168,000 to $10,678,000 from $8,510,000 at year end
1999. This increase is attributed to the inventory on hand of American
Gaming and Electronics and higher finished goods in the Company's core
business. Other current assets increased $563,000 to $1,172,000 from
$609,000 at year end 1999. This increase is attributed to higher deposits
on hand with vendors. During the first quarter of 2000, the Company
entered into a 50/50 joint manufacturing venture in Malaysia. This joint
venture is accounted for under the equity method. The Company recorded an
initial investment of $200,000 and recorded a net loss on operations of
$27,000 during 2000. Intangibles (net) increased $630,000 to $2,819,000
from $2,189,000 at year end 1999, as the Company recorded goodwill and
trademarks on its acquisition of American Gaming and Electronics. Current
liabilities increased $1,447,000 to $4,999,000 from $3,552,000 at year end
1999. This increase is attributed to additional accounts payable due to
vendors. Long-term liabilities increased $4,405,000 to $7,981,000
compared to $3,576,000 at December 31, 1999. This increase is attributed
to a higher outstanding balance at June 30, 2000 of the Company's general
line of credit to fund the growth of current and new operations. Working
capital increased by $5,817,000 since year-end 1999, to $16,298,000 and
the Company's current ratio is 4.26 to 1.
Forward Looking Statements
Because the Company wants to provide shareholders and potential investors
with more meaningful and useful information, this report may contain
certain forward-looking statements (as such term is defined in the
Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended) that reflect the Company's current expectations
regarding the future results of operations, performance and achievements
of the Company. Such forward-looking statements are subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995.
The Company has tried, wherever possible, to identify these forward-
looking statements by using words such as "anticipate," "believe,"
"estimate," "expect" and similar expressions. These statements reflect
the Company's current beliefs and are based on information currently
available to it. Accordingly, these statements are subject to certain
risks, uncertainties and assumptions which could cause the Company's
future results, performance or achievements to differ materially from
those expressed in, or implied by, any of these statements which are more
fully described in our Securities and Exchange Commission filings. The
Company undertakes no obligation to release publicly the results of any
revisions to any such forward-looking statements that may be made to
reflect events or circumstances after the date of this Report or to
reflect the occurrence of unanticipated events.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's market risk during
the three and six month period ended June 30, 2000. For additional
information refer to Item 7 in the Company's Annual Report in form 10-K
for the year ended December 31, 1999.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A. The annual meeting of stockholders of Wells-Gardner Electronics
Corporation was held on April 25, 2000.
<TABLE>
B. Set forth below is the tabulation of the votes on each nominee for
election as a director:
Withhold Broker
For Authority Non-votes
--------- --------- ---------
<S> <C> <C> <C>
Marshall L. Burman 4,295,908 63,510 0
Jerry Kalov 4,302,628 56,790 0
Frank R. Martin 4,301,263 58,155 0
Anthony Spier 4,290,141 69,277 0
Ernest R. Wish 4,286,795 72,623 0
</TABLE>
C. Set forth below is the tabulation of the vote on approval of the
adoption of the Company's 2000 Executive Stock Award Plan:
For Against Withheld Brokers Nonvotes
--------- ------- -------- ----------------
2,622,874 177,485 21,903 1,537,156
D. Set forth below is the tabulation of the vote to approve the
appointment of KPMG LLP, as independent public accountants of
the Company for the current fiscal year:
For Against Withheld Brokers Nonvotes
--------- ------- -------- ----------------
4,325,295 22,805 11,318 0
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits:
Exhibit 27 - Financial Data Schedule
(b). Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 2000.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WELLS-GARDNER ELECTRONICS CORPORATION
Date: August 8, 2000 By: /s/ GEORGE B. TOMA
-----------------------------------
George B. Toma CPA, CMA
Vice President of Finance,
Chief Financial Officer & Corporate
Secretary
